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BENEFITS


TAX CONSIDERATIONS

TAXABILITY OF YOUR LACERA RETIREMENT ALLOWANCE

Retirement allowances are considered taxable income under both Federal and State of California income tax laws. LACERA must withhold Federal and California State taxes from your monthly retirement allowance unless you elect to have no withholding.

In compliance with federal law, California income tax is not withheld from your retirement allowance if your primary residence is outside California. However, if you are receiving other income from California you may still be subject to California state tax. You may elect to have LACERA withhold taxes from your retirement allowance to satisfy your other California obligation(s).

If you reside in another state, your LACERA retirement income may be taxable in that state. State tax requirements on retirement income differ from state to state, but the "source tax" law protects you from paying state taxes in two states on the same retirement income.

FEDERAL INCOME TAX WITHHOLDING

When you retired or began receiving benefit payments from LACERA, you had the opportunity to choose federal income tax withholding from your benefit payments. You also had the option to elect not to have federal income tax withheld. You may change your decision at any time. You have the option to change your tax withholding election. LACERA will remind you about your option to adjust your tax withholding yearly through our retiree newsletter, Spotlight, and on your January check.

Your original withholding choice will remain in effect until you file a new W-4P/DE-4P tax withholding election form with LACERA. Click here to access the tax withholding form. You may also use Form W-4P, which is available from the IRS and Form DE-4P, which is available from the California Employment Development Department. If you make a change, it will be put into effect by the first of the month that is at least 30 days after LACERA receives your completed form.

Payment of your income tax is your responsibility. Withholding is one way for you to pay a portion of your tax. If no tax or not enough tax is withheld from your benefits, you may have to pay estimated taxes during the year or pay a tax penalty at the end of the year. Whether you have to pay federal income tax on your benefit depends on the total amount of your taxable income and the type of benefit you receive.

Your decision on withholding tax is an important one. For questions regarding tax matters, consult with a professional advisor; LACERA does not offer tax or legal advice.

This information applies to LACERA retirees, survivors, and beneficiaries who are U.S. citizens or resident aliens (green card holders) and live in the United States.

U.S. Citizens and Resident Aliens Living Abroad
IRS regulations generally require LACERA to withhold income tax from allowance payments delivered outside of the United States. Without your completed W-4P tax form on file, LACERA must withhold income tax from your monthly allowance as if you were married and claiming three withholding exemptions (the W-4P tax form refers to exemptions as allowances). To elect to have LACERA withhold federal tax at a rate other than married with three exemptions or to elect not to have tax withheld, you must submit Form W-4P. If the category you elect on Form W-4P results in a lower withholding amount, LACERA will withhold at the married with three exemptions amount.

As a U.S. citizen or resident alien, you may use Form W-4P to elect not to have tax withheld, but only if you provide a home address in the United States. This address must include a street number. (In the event of an IRS audit, it will be your responsibility to substantiate your residence. LACERA is not responsible for the address you submit.) If you submit a P.O. Box as your home address, LACERA will withhold tax at the married with three exemptions rate.

Check with a professional advisor to determine which withholding category is best for your personal situation; LACERA does not provide tax advice.

This policy affects federal tax only. California State tax withholding elections are not affected.

If you are a non-resident alien (living outside the United States and not a U.S. citizen or resident alien), different income tax withholding rules apply. Contact LACERA for more information.

SERVICE-CONNECTED DISABILITY RETIREMENT

You may be eligible for special tax exclusions if you received a Service-Connected Disability (SCD) Retirement.

If you received an SCD Retirement, an amount equal to 50 percent of your final average compensation may be excludable from your gross income for federal tax purposes, as provided by Section 104(a)(1) of the Internal Revenue Code. The amount of any cost-of-living adjustment (COLA) attributable to that amount is also excludable. Any remaining allowance amount or COLA is taxable. Upon your death, your surviving spouse or minor child would be eligible for this tax exclusion if he or she is eligible to receive a continuing benefit from LACERA.

This information is based on a 1976 IRS Private Letter Ruling issued to Ventura County.

Excerpt from IRS Private Letter Ruling to Ventura County

For questions regarding tax matters, consult with a professional advisor; LACERA does not offer tax or legal advice.

2/10/14